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BC Hydro's Powerex agrees to settlement in California claims

Traders inside the Powerex office in Vancouver go over the action onscreen. Powerex is the electricity trading arm of BC Hydro. Powerex, the electricity trading subsidiary of BC Hydro will pay $273 million US in cash and offer California electric utilities a credit worth $477 milion US to settle claims against it related to allegations that it helped inflate the California power market during that state’s electricity market crisis in 2000/01, the company announced this morning.

Photograph by: Arlen Redekop, PNG Files
, Vancouver Sun

Powerex, the electricity trading subsidiary of BC Hydro, has reached a $750 million out of court settlement over claims it drove up electricity prices in California more than a decade ago.

Powerex will pay $273 million US in cash and offer California electric utilities a credit worth $477 million US to settle claims against it related to allegations that it helped inflate the California power market during that state's electricity market crisis of 2000 and 2001.

Of the more than 40 settlements the state has already received, Powerex is the largest.

The settlement, Powerex said, relieves it of a potential $3.2-billion liability from the ongoing actions of the U.S. Federal Energy Regulatory Commission against the 60 electricity trading companies that sold power into the California market during that period.

B.C.'s Minister of Energy and Mines Bill Bennett said Friday that the decision to settle was not a happy one but that it was the right thing to do in order to avoid a drawn-out court battle with California.

The potential $3.2 billion liability would go up $125 million every year in interest, he said, plus another $50 million in legal fees.

"I know there will be some folks over the next few days who say, well, if (Powerex) didn't do anything wrong they should just fight it out in the U.S. court system," he said. "That is a huge risk to the taxpayers of British Columbia."

Bennett said the money is on the books, with the largest share of the $750 million to be paid off using a credit that California owes B.C.

Powerex will run a net loss of $101 million this fiscal year as a result of the settlement, but Bennett insisted that will not mean an increase in rates.

There will be no impact on the taxpayer, he said.

The settlement stems from a legal battle in which the state of California attempted to recover billions of dollars it paid for expensive electricity in 2000 and 2001 after it bungled the deregulation of its wholesale power market.

Power companies went bankrupt and consumers suffered rolling blackouts and record-high electricity prices during the crisis in a market that FERC concluded had become dysfunctional.

The agency has since ordered refunds from the trading companies that sold power into that market and the province said the majority of its settlement will provide refunds as previously mandated.

In unveiling the settlement, Bennett said the agreement "expressly recognizes that Powerex admits to no wrongdoing," pointing to a 2003 review of Powerex by the regulatory body concluded there was no evidence Powerex engaged in illegal practices and were a reliable supplier during the crisis.

Bennett added that government does not want to risk a different outcome from a trial, and drew parallels to the province's softwood lumber dispute.

The settlement, which is subject to FERC's approval, was made with California utility companies, the California Attorney General and other parties to resolve the claims.

To date, 47 sellers have made separate settlements with parties in California, according to the provincial government.

Powerex CEO Teresa Conway denied allegations prices were inflated. She stressed that Powerex had not done anything wrong and that, for Powerex, it was always a trade dispute.

"It was determined that the market was broken and that all sellers into that market, all 60 sellers, would have to pay market wide refunds."

"We have chosen legal and financial certainty over the continuing of a protracted and costly dispute."

Bennett said given the unpredictability of the U.S. court system, $3.2 billion was just too big of a risk to take.

But NDP energy critic John Horgan questioned why the province felt it had to pay more than $250 million for Powerex to say it has done nothing wrong.

Horgan said he was shocked to hear about the settlement, particularly after meeting earlier this year with Mike de Jong and they agreed the best decision was to defend their rights in the trade dispute.

"It's scandalous," he said. "In 12 years we've had 19 positive rulings and only one negative one ... I can't understand why they would do this. It's inconceivable."

Horgan also said he doesn't believe that B.C. ratepayers won't be affected by the settlement.

"BC Hydro doesn't have a money tree, they have customers. And now (BC Hydro) has found another quarter of a billion dollars. Who else is going to pay?"

Horgan said there is no indication the settlement was budgeted by the Liberal government.

California Attorney General Kamala Harris released a statement Friday, saying that the settlement brings long-awaited compensation to California ratepayers for Powerex's conduct.

Harris alleges Powerex engaged in market gaming by purchasing and exporting to Canada huge quantities of electricity California needed, and selling it back to California at exorbitant prices.

"Californians suffered through huge rate hikes and blackouts during the energy crisis," he said, in the statement. "This settlement brings long-awaited compensation to California ratepayers for Powerex's conduct."

According to BC Hydro's 2013 annual report, the California Power Exchange and California Independent System Operator still owed Powerex $265 million US, plus interest, from electricity trading during the disputed period, which will be forgiven as part of the credit.

Traders inside the Powerex office in Vancouver go over the action onscreen. Powerex is the electricity trading arm of BC Hydro. Powerex, the electricity trading subsidiary of BC Hydro will pay $273 million US in cash and offer California electric utilities a credit worth $477 milion US to settle claims against it related to allegations that it helped inflate the California power market during that state’s electricity market crisis in 2000/01, the company announced this morning.

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